How the Sale of Comag Might Impact the Newsstand Supply Chain

The deal could give more negotiating power to distributors and publishers.

Comag Marketing Group, the national magazine distributor jointly owned by Hearst and Condé Nast, has been sold to the Jim Pattison Group. The deal signals the exit of the two publishers from the magazine distribution business and is being positioned as an effort to heal a newsstand supply chain that’s long been fraught with competing interests and inefficiencies.

According to JPG’s vice chairman Michael Korenberg, Hearst and Condé Nast had not put Comag on the block, but after about a year of conversations, a deal became a more viable option.

The deal greatly expands JPG’s reach into the market. JPG is based in Vancouver, BC and owns wholesaler The News Group, which bought Anderson News’ assets when that wholesaler shut down in 2009. The News Group is estimated to have about a 50 percent market share in the U.S.

Incentives Aligned

“This more properly aligns the incentives across all the supply chain partners,” says CMG president Jay Felts. “The most optimistic takeaway is that this is going to migrate focus away from the counterproductive intra-channel tension that exists today and move towards a renewed collaboration across the entire supply chain, with our collective focus towards driving the top line.”

Incentives, to this point, have become incredibly misaligned due to the competing interests Felts alludes to. “Suffice it to say, the different entities in the supply chain in essence are rewarded off of different incentive models,” he says. “It’s how the supply chain has been structured for decades, and too often those goals are in conflict rather than in concert—for example, retail dollar sales versus efficiency versus cost cutting. What is important to the retailer is not necessarily in concert with what drives the publisher’s and wholesaler’s economics, baed on the current outdated model.”

More Transparency?

Additionally, the deal pulls back the curtains, in a sense, so everyone can see a larger portion of supply chain operations out in the open. “By allowing a major wholesaler to understand the full dynamics of the suppliers, their margins etc., there will be attempts to align incentives,” says one newsstand executive at a major publisher. “After all, JPG has to get their money back for the purchase and start to make some, too. JPG owns other companies, which are trying to make money in this business and know where the pressure points are. Further to alignment, this also suggests that anyone dealing for any period of time in this channel understands that it is the creators of content who ultimately hold the key. JPG is a good company with good people. They are swimming upstream.”

Focus on Core Business

In that sense, it is no surprise that Hearst and Condé Nast have exited the distribution business. The magazine recession of the last 3 or 4 years has turned the newsstand into a much riskier proposition. “This was the opportunity to jump out,” says Baird Davis, an industry observer and newsstand operations expert. “The newsstand has been reduced by 30 or 40 percent and look what’s happened in the last year—it’s accelerating. Condé and Hearst save big money. They have cut a better deal, they have reduced the cost of operating and they have gotten out from under all those receivables they have to collect.”

From the perspective of Hearst and Condé Nast, the two publishers can turn their focus on publishing magazines, but Hearst Magazines executive vice president and general manager John Loughlin says some of the capital that’s not being directed at CMG will now be funneled back into the marketing and promotion of the channel. “We get two mutually reinforcing benefits. We eliminate redundancies and Hearst and Condé Nast are going to use those savings to reinvest back into the channel for marketing and promotion.”

Other publishers, who are not Hearst or Condé, have dueling points of view. “I think this is a 50/50 proposition,” says the newsstand executive. “I’m a publisher. Fifty percent of me thinks this gives me some leverage in critical areas of my business and maybe more insight downstream into how a publisher can better allocate their newsstand expenses to fortify the distribution and sale of my magazines or books and still make a few cents doing so. The other 50 percent of me worries that other wholesalers/retailers may be concerned about my relationship with TNG, firewall or no firewall, if I am a client of CMG. I cannot afford misunderstandings in this current difficult selling environment.”

Importantly, the deal could level the playing field and create leverage for the content and distribution sides. Retailers have been playing the wholesalers off of each other for years, bidding costs up. The Comag deal gives Pattison even more market share and in another context, this could be viewed with some trepidation. However, the deal could put more negotiating power back in the hands of wholesalers.